Italian Bonds Gain for First Week in Two Months on Stimulus View

Italian and Spanish government bonds posted their first weekly gains in almost two months as speculation U.S. and European central banks will keep pursuing monetary stimulus boosted the appeal of fixed-income assets.

Italy’s 10-year securities gained for a third day and Spain’s for a fourth after the Sueddeutsche Zeitung reported ECB President Mario Draghi has asked his team to study ways out of the debt crisis, without saying how it obtained the information. Federal Reserve Governor Jeremy Stein said the Fed didn’t signal a policy change by saying it plans to wind down $85 billion in monthly bond buying as unemployment falls. German bunds were little changed this week.

“There is a steady stream of central-bank commentary trying to reassure markets that there will be no liquidity withdrawal anytime soon,” said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich. “That’s what markets are listening to right now.”

Italy’s 10-year yield dropped seven basis points, or 0.07 percentage point, this week to 4.54 percent at the 5 p.m. close of trading in London. The 4.5 percent bond due May 2023 gained 0.565, or 5.65 euros per 1,000-euro ($1,305) face amount, to 100.025. The yield declined two basis points today.

Spain’s 10-year yield fell 15 basis points in the week to 4.77 percent. The rate slipped one basis point today.

ECB Study

Draghi asked his team to do a 360-degree study of ways out of the debt crisis, including debating the idea of additional quantitative-easing type bond purchases covering all 17 euro-area states, Sueddeutsche Zeitung reported.

“I can’t rule out that inside a large organization, someone is thinking about something, but that’s not policy-relevant,” ECB Executive Board member Joerg Asmussen wrote in an e-mail to Bloomberg News.

Federal Reserve Bank of New York President William C. Dudley said yesterday any decision to reduce the pace of asset purchases wouldn’t represent a withdrawal of stimulus and an increase in the Fed’s benchmark interest rate is “very likely to be a long way off.”

German 10-year yields were little changed this week at 1.73 percent. The rate climbed to 1.85 percent on June 24, the highest since April 2012, amid a global selloff in fixed-income securities after Fed Chairman Ben S. Bernanke said on June 19 the U.S. central bank may reduce asset purchases this year.

German Inflation

German bunds fell earlier today after a government report showed the annual inflation rate accelerated to 1.9 percent in June from 1.6 percent in May. Economists forecast a rate of 1.8 percent, according to a Bloomberg News survey. Quicker inflation reduces the purchasing power of the fixed income from bonds.

Germany’s 10-year break-even rate, a measure of inflation expectations, rose three basis points to 1.57 percentage points after dropping to 1.43 percentage points on June 24, the lowest since June 2012.

Government securities around the world are poised for their worst quarter since the three months ended December 2010, according to Bank of America Merrill Lynch indexes. Belgian securities declined 2.1 percent, the worst performer among European peers, the data showed.

Italian securities handed investors a return of 1.7 percent this year through yesterday, according to Bloomberg World Bond Indexes. Spanish bonds gained 5.2 percent, while German securities lost 1.7 percent.

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